BofA to Pay $42M for Improper Electronic Trading Activities

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Recently, Bank of AmericaBAC agreed to pay a fine of $42 million to the State of New York for hiding facts from customers regarding its electronic trading services for a period of about five years.

The Wall Street biggie admitted to have routed millions of client orders to other electronic liquidity providers such as Citadel Securities, Knight Capital, D.E. Shaw, Two Sigma Securities and Madoff Securities, while convincing clients that its in-house electronic services are "more sophisticated and safer than they really were."

The bank had reprogrammed its trading system so that confirmation messages were sent directly to the clients when the outside liquidity providers executed the orders. Beginning 2008, the bank has used this "masking" strategy and committed fraud against 16 million client orders.

Attorney General Eric Schneiderman said, "Bank of America Merrill Lynch went to astonishing lengths to defraud its own institutional clients about who was seeing and filling their orders, who was trading in its dark pool, and the capabilities of its electronic trading services."

Further, BofA made changes in the post-trade reports called "transaction cost analysis" reports, which provided clients information about execution of their orders. Also, client invoices and other written documentation were altered to show the venue of execution to be in-house.

The New York state regulator has received about $125.5 million as penalties so far on settlements of probes regarding electronic trading. Prior to BofA's settlement, Deutsche Bank Aktiengesellschaft DB had paid about $18.5 million after admitting to have fraudulently conducted order routing process.

Further, in January 2016, Credit Suisse Group CS and Barclays plc BCS paid penalties of $30 million and $35 million, respectively, over practices relating to the operation of dark pool.

A dark pool refers to the private exchanges used for securities trading that are not available or transparent to the general public.

BofA remains committed to align its banking center network according to customers' needs by divesting and consolidating branches. Also, its efforts to streamline and simplify operations bode well for the long term. However, challenges faced by the bank in improving fee income remain a big concern.

Shares of BofA have gained 26.6% in the past year, outperforming 12.6% growth of its industry .

BofA carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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Bank of America Corporation (BAC): Free Stock Analysis Report

Credit Suisse Group (CS): Free Stock Analysis Report

Barclays PLC (BCS): Free Stock Analysis Report

Deutsche Bank Aktiengesellschaft (DB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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